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Wood Incorporated factored $150,000 of accounts receivable and Engram Factors Inc. on the without recourse basis. Engram assesses a 2% finance charge of the amount of accounts receivable and retains an amount equal to 6% of accounts receivable for possible adjustments. Prepare the journal entry for Wood Incorporated and Engram Factors to record the factoring of the accounts receivable to Engram.

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hyderali230

Answer:

Wood (without recourse)

DR. Cash                                        $138,000

DR. Due from Factor                      $9,000

CR. Loss on Sale of Receivables  $3,000

CR. Accounts Receivable                             $150,000

Engram (without recourse)

Accounts Receivable             $150,000

Due to Customer (Wood)                         $9,000

Interest Revenue                                      $3,000

Cash                                                          $138,000

Explanation:

In case of sale of receivables without recourse Loss on the sale is financial charges only which is given and cash recived is the net of Net book value, financial charges and amount due from factor.

In case of sale of receivables with recourse Loss on the sale is financial charges and any recourse obligation and cash recived is the net of Net book value, financial charges and amount due from factor.

Due from Factor = 6% X $150,000 = $9,000

Loss on Sale of Receivables = 2% X $150,000 = $3,000

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